“100% of Donations Go to Charities” May Do More Harm Than Good

“100％ of your donation goes to the charity.” It’s a statement that’s made proudly, implying increased benefits for charities, inspiring goodwill toward the organization making the claim and intended to make the donor feel good. The problem is, when you look under the hood, it’s a statement that may do more harm than good.

Costs for charities

While well intended, this claim perpetuates the myth that there are no costs associated with acquiring and processing donations. Unfortunately, this overlooks the fact that, just like any other business, all charities have overhead costs, such as staff, office space and equipment, programming space, legal and accounting requirements, auditing obligations, fundraising, marketing, donor relations, volunteer management and so on.

“There is always a cost associated with giving, even if the donation is made directly on a charity’s website.” - Tom Bognanno, Community Health Charities

Donation costs can be even higher in the context of a matching gift program, as many programs require that the charity also confirm the original donation prior to processing the matched amount.

Costs by payment method

Costs associated with donations often depend on the method of payment that is used to make the donation. For example, checks, which are still a popular way to make donations in North America, require significant administrative resources to receive and process. Donations made by check are 10 times more expensive for donors to use than electronic payments, and five times more expensive for charities to receive and process. Unlike electronic payments, those costs don’t come down with scale. Checks are also unreliable: lost and undeposited checks cause charities to miss out on millions of dollars each year and can damage a company's credibility with its employees.

Costs by fundraising model

The costs incurred by donations also depends on the fundraising method. Consider the United Way model, for example. Only a portion of each dollar donated gets to the funded agencies. Don’t get us wrong, the United Way provides valuable expertise, an extensive donor network and reach that many charities can’t provide for themselves. However, all of that requires an elaborate machine that costs significant money to operate. While they vary by location and campaign, the United Way’s costs can range from 10% to as high as 25% of donations.

Charity aggregators connect geographically dispersed donors with a variety of charities in one online location. Most charity aggregators charge a percentage fee on total donations, as do many business-to-consumer fundraising sites. For instance, GlobalGiving, a global crowdfunding community that does great work, charges 15%. Other popular crowdfunding platforms, such as CrowdRise or GoFundMe, charge fees ranging from 5.9 to 9.25%.

Likewise, high-profile fundraising events such as Movember and Run for the Cure are likely only netting $0.50 to $0.60 per dollar donated. This is due mainly to the high costs associated with coordinating, marketing and operating the events—those great souvenir shirts don’t grow on trees, you know!

Show us the money! The case for transparency

Most donors have no idea how much of their donation is going to their chosen cause, what the associated costs are or who is paying those fees (trust us, somebody is paying them at some point in the process). Part of the reason for this is a lack of transparency.

Much of the discussion of costs is kept from donors. This is partly motivated by a desire on the part of companies and charities to say that 100% of donations are going to the charity. Unfortunately, this creates the illusion that money magically gets to charities with no costs whatsoever. And while there may be perfectly good reasons for this, it can lead to several undesirable outcomes:

It may hide the actual costs that are being paid, either by the corporate sponsor or the charity. This means that inefficiencies that reduce the impact of the donation aren’t being brought to light, which means that they will continue to operate, which hurts the donors and the charity. After all, if you don’t know something’s broken, how can you fix it?

It creates operational and economic inefficiencies because companies are spending their limited funds on program administration and manual processes that technology and platform providers can perform more efficiently as a scalable core competency. These funds would be much more productively spent on matching programs, which would create increased benefit for the company and the charities it supports.

It perverts pricing for workplace giving solutions by obscuring actual fees, driving them further underground. For example, 100% of donations may technically go to the charity, but then they must pay fees to the third parties that disburse the funds. This is neither good nor transparent.

" Introducing more transparency around the actual costs of processing donations is important work that impacts charities of all sizes.” — Kal Stein, Benevity Nonprofit Community Council Chair

Pulling back the curtain: The Benevity model

Donations made through Benevity also have costs. We have a 2.9% charity support fee that is deducted from the donation when the funds are distributed to the charity. For any large individual transactions, the charity support fee is capped. Donors still receive a tax receipt for 100% of their donation amount. This nominal fee covers all associated costs, including:

The philosophy underlying this model is to streamline the donation, disbursement and receipting processes to reduce time-consuming, manual costs for charities. We do not charge any extra fees for administrative users or access to services and features like charity vetting, payroll donations, automated matching and so on. All of this is included in our pricing.

“The small processing fee that is associated with each contribution is well less than the cost of the administrative work that we typically incur when processing donations that are sent directly to us.” - Director of a large US charity

We are proud of this model, in part because all costs are known to both the donors and their charities up front, so everyone knows what the net benefit to the cause will be. Thanks to our streamlined monthly disbursement process, they also know exactly when the charity will be receiving the funds!

Benevity’s scalable, automated platform is by far the most cost-effective and efficient way for them to process donations. For instance, in December 2016, Benevity processed over 33,000 donations for one charity from widely dispersed donors into one simple electronic payment. Just imagine what that would have cost in human and financial resources if manual processing had been required, just for that one charity!

More bang for your donation buck!

Our clients love our model, but sometimes they tell us that they would prefer to pay the charity support fee themselves (instead of having the charity pay it), so they can legitimately tell their employees and customers that “100% of your donation goes to the charity.” Of course, we love our clients and we are happy to make this happen, but we (very respectfully) believe this may do more harm than good. This may seem counterintuitive, but it has to do with increasing the total funds that get donated.

Paying the fees may mean companies are missing a great opportunity to leverage their limited charitable funds to generate more donations. Choosing to cover the costs may appear to be the equivalent of making a donation of that amount. However, by spending those funds on a fee — which doesn’t get matched — instead of on a donation — which does get matched — you’re actually depriving your selected charity of important matched funds. Ironically, this generous gesture may thus limit the overall impact of the expenditure. Is this the best use of your philanthropic budget?

We talk to charities a lot, and we often ask which they’d prefer: to have their support fee paid for them, or to have companies leverage the same amount of funds to generate more donations via matching? The answer is unequivocal: “Give us the matching dollars!”

By directing funds to your Goodness programs in the form of matching dollars, volunteer rewards or other pro-social incentives, you can get more people involved in those programs, thereby driving greater donations to the charities. This creates far more bang for your (donation) buck than paying a nominal fee.

The choice of charities is: “Give us the matching dollars!”

Go for the triple benefit

By adding greater transparency and leverage to the mix, you create a triple win: for companies, charities and donors. The ultimate impact is that more people can give more money to more causes, which benefits all parties.